BBC couples derisking with flexibility for DB members

Pies allow members to sacrifice some or all future increases to their DB pension in exchange for a higher income up front.

A lot of schemes are looking at introducing extra flexibilities as members come up to retirement so they can access the freedom and choice agenda

Matthew Demwell, Mercer

These and other incentive exercises have been commonly used by DB schemes to reduce liabilities, but the introduction of freedom and choice has prompted some schemes to use them to increase the options open to members.

A spokesperson for the BBC said: “Against the backdrop of greater flexibility generally for pension savers introduced by recent Budgets, the BBC is making this option available to provide eligible pensioners with additional choice and flexibility, which may suit some members.”

Letters went out to eligible members at the start of this month.

In August this year, the £12.9bn scheme offered paid-for advice to eligible active and deferred members who were considering transferring out to take advantage of the freedom and choice reforms.

In a statement on its website, the BBC said: “This option may suit some people and not others, depending on their current lifestyle and other sources of income. The BBC has therefore put in place support to help eligible pensioners decide whether the option is right for them. This includes independent financial advice funded by the BBC.”

Matthew Demwell, UK head of member options at consultancy Mercer, said: “A lot of schemes are looking at introducing extra flexibilities as members come up to retirement so they can access the freedom and choice agenda. A lot of them are offering enhanced transfer values as well.”

A bird in the hand...

Demwell said Pies sometimes offer an immediate increase that is less than the value of the inflation protection members give up, known as an ‘unbalanced deal’.

Where members are offered a balanced deal the employer must provide them with financial guidance. Where an unbalanced deal is offered, Demwell said the employer must provide a “more robust form of financial support”, such as independent financial advice.

While a Pie means members give up future increases, it can be a better option for some due to changing spending patterns, as elderly people who are not in care often do not spend as much as those who have recently retired.

Calum Cooper, partner at consultancy Hymans Robertson, said it could be useful for pensioners to have a “U-shaped” income in retirement, bookending it with high income to ensure later life care can be paid for if necessary.

Cooper said: “Even though you might not get the full value in all cases, you might still choose to do it because you want more money early on.”

Jonathan Watts-Lay, director at financial education company Wealth at Work, said the freedom and choice reforms made continual advice and education increasingly important for pensioners as more options become available.

He said: “For most people it’s very unlikely there’s a slam-dunk option for them. It’s more a judgment call.”